2009 (3) TMI 114 - AT - Service Tax

Waiver of Penalty Section 80 - Service Tax and Interest deposited before issuance of Show Cause Notice - the appellants were under bona bide belief that commission received from the Financial Institutions is not subjected to service tax and as soon as they came to know about the liability of service tax, they had paid. Therefore, in view of the fact that the appellants have voluntarily paid the service tax with interest before issue of show-cause notice penalty set aside.

Summary

Issues:
1. Liability of authorized dealers for service tax on incentive received from Financial Institutions.
2. Applicability of penalty under sections 76, 77, and 78 of Finance Act, 1994.
3. Interpretation of circular No. 87/05/2006-ST issued by CBEC.
4. Consideration of bona fide belief as a defense against penalty imposition.
5. Application of section 80 of Finance Act, 1994 for relief from penalty.

Analysis:
1. The case revolved around the liability of authorized dealers for service tax on the incentive received from Financial Institutions. The appellants, authorized dealers of Tata Motors Limited, received incentives from various financial institutions for sales promotion activities. The issue arose when the appellants did not pay service tax on these incentives, leading to the registration of an offense case against them for treating the receipt of incentives as Business Auxiliary Services.

2. The Commissioner (Appeals) set aside the penalties imposed under sections 76 & 77 of the Finance Act, 1994, but confirmed a penalty of Rs.11,492 under section 78. The appellants contended that they were under a bona fide belief that the commission received from Financial Institutions was not subject to service tax. They voluntarily paid the service tax with interest before the show-cause notice was issued.

3. The appellants argued that the confusion regarding the liability for service tax was clarified by the CBEC through circular No. 87/05/2006-ST, dated 6-11-2006. They claimed that upon receiving this clarification, they promptly paid the service tax. The appellants sought relief from the penalty under section 78 by invoking the provisions of section 80 of the Finance Act, 1994.

4. The Technical Member, considering the arguments presented, found merit in the contentions of the appellants. Acknowledging the confusion surrounding the liability for service tax and the subsequent clarification provided by the CBEC, the Technical Member deemed it a case deserving relief from the penalty under section 78. The Technical Member exercised the powers of section 80 to set aside the penalty imposed under section 78 of the Finance Act, 1994.

5. In conclusion, the judgment provided relief to the appellants by setting aside the penalty imposed under section 78 of the Finance Act, 1994, considering their bona fide belief and the timely payment of service tax upon clarification of the tax liability. The case highlighted the importance of clarity in tax regulations and the application of statutory provisions to provide appropriate relief in cases of genuine confusion or misunderstanding.